What does “cost of living” really mean and why does it differ from state to state?

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    During the COVID-19 pandemic, many people started working remotely for the first time. Many people are returning to office jobs, but others continue to work remotely. Without being tied to a physical office location, we see people moving to different locations across the country. If you’ve been in one place for most of your life, you might be surprised that the cost varies across states and communities.

    What is the cost of living?

    The cost of living is defined as the total amount of money needed to live in a given area. A way to measure the cost of living as either a raw monthly or yearly amount. Another way to often measure the cost of living is through a cost of living index. the Council for Community and Economic Research (CCER) has been compiling, publishing and researching information on the cost of living at the local level since 1968.

    Typically, a cost of living index takes the average cost of living across the country and sets that as a base of 100. Then states or metropolitan areas where the cost of living is above the national average have numbers over 100, and those with lower cost of living have an index of less than 100. This allows you to easily compare the cost of living in different locations. If you live in an area with a cost of living index of 109, you know that your cost of living is about 9% above the national average.

    What is the cost of living formula?

    There are a variety of different companies and organizations that calculate the cost of living in different locations, and each uses a slightly different cost of living formula. As an example, the US Bureau of Labor Statistics publishes the Consumer price index (CPI). The CPI is used by the government to determine things like the cost of living adjustment for social security.

    In addition to an overall index, BLS also calculates CPI indices for the following categories:

    • Eating (both at home and away from home)
    • Energy (petrol, heating oil, electricity and natural gas)
    • New and used vehicles
    • clothing
    • Medical supplies
    • Accommodation / accommodation
    • Transport services

    The prices for each of these areas vary from month to month and in every other state and municipality.

    Why does the cost of living vary depending on the state?

    If you have traveled or lived in different parts of the United States, you may have noticed that prices often change as you travel to different areas. There are a variety of different reasons why the cost of living varies from state to state and even within a given state. One of the main reasons for differences in the cost of living is the rural or urban location of an area. In general, cities and urban areas have a higher cost of living than rural areas.

    The cost of living of certain goods can vary with other factors as well. The proximity of a state or a metropolitan region to various natural resources can also play a role. If you live in an area with access to oil or natural gas, it stands to reason that your energy bills may be lower than other areas. Similarly, proximity to farms and other food production can keep a region’s food costs lower. State and local tax policies also contribute to the total cost of living.

    Which states have the lowest cost of living?

    The cost of living by state varies depending on the year and also the method used to calculate the cost of living. According to CCER’s fourth quarter 2020 cost of living index report, the top ten states with the lowest cost of living are:

    1. Mississippi
    2. Kansas
    3. Oklahoma
    4. Alabama
    5. Arkansas
    6. Georgia
    7. Tennessee
    8. Missouri
    9. Michigan
    10. Indiana

    Remember that these are just the average cost of living for an entire state, and the cost of living varies widely within a state. The cost of living in rural Albany, Georgia will be much lower than in the metropolitan Atlanta area. Another thing to keep in mind is that your income may be lower in areas with lower cost of living, although it may not be as important if you have a remote job.

    The bottom line

    The cost of living in a state or metropolitan area is defined as the cost required to live in that particular location. A cost of living index is a way of normalizing and comparing the cost of living between different areas. A cost of living index of 100 is the national average. Higher numbers are more expensive and lower numbers are less expensive. There are several companies and organizations that calculate cost of living indices, and each uses slightly different formulas and prices. Moving from a high cost of living area to a lower cost of living area is a smart way to keep making your money without increasing your income.

    Author's photo

    Dan Miller (78 posts)

    Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children.

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